How to register a business in Malaysia
The different types of corporate entities available in Malaysia for you to conduct your business activities
COMPANY SECRETARY BUSINESS SOLUTIONS DIGITAL SECRETARY TYPES OF BUSINESS ENTITIES COMPANY INCORPORATION SENDIRIAN BERHAD TYPES OF COMPANIES
Before you register your business, you will need to decide what type of business entity will suit your needs. In Malaysia, there are a number of entities that you may use to conduct your business activities.
(1) Sole Proprietorship (governed by the Registration of Businesses Act 1956)
This type of business is owned by a single individual. The business may have a trade name or it may be named after the owner. The owner's liability is unlimited. This means that if the business were to fail or is declared bankrupt, the creditors of the business can sue the sole proprietor for all debts owed to them. Your personal assets, personal income and employment income can be used to pay off the creditors. This business is registered at the Suruhanjaya Syarikat Malaysia (SSM) by the individual owner. It is a simple process which can be done online, however you may need to visit the SSM once to get your identity documents verified at the counter. A sole proprietorship type of business is cheaper to register and you do not need to have your accounts audited or disclosed as public documents.
(2) Partnership (governed by the Partnership Act, 1961)
A partnership business is governed by the Partnership Act, 1961 and has a minimum 2 owners and no more than 20 owners. Just like a sole proprietorship, the partners' liabilities are unlimited, and the partners are both jointly and severally liable for the debts and obligations of the partnership should its assets be insufficient. But the registration process is simple and there is no need for the accounts to be audited or presented as public documents. The profit of the partnership is usually distributed according to the amount of capital placed by each partner, and may be based upon a Partnership Agreement that is drawn up amongst the owners. This agreement is not obligatory but it is recommended. The Partnership Agreement or Deed will govern the rights and obligations of each partner. Just as with profits, losses are also shared equally.
(3) Limited Liability Partnership
Governed by the Limited Liability Partnership Act, 2012, this form of entity combines the characteristics of a company and a conventional partnership. This is the preferred choice for small businesses. An LLP is a separate legal entity. The liability is restricted to the contribution made by the partners. There is no requirements to have the accounts audited or submitted to the SSM. There is no maximum limit to the number of partners that an LLP can have. The registration process is simple but there are certain requirements you need to comply with.
(4) Company Limited by Shares ( Private Limited Company / Sdn. Bhd. )
A company is limited by shares if its shareholders/members are legally responsible for the debts of the company to the extent of any unpaid amount of their shares in the company. Unlike a partnership or a sole proprietorship, as a shareholder liability is limited. The Company can be sued in its own capacity and your personal assets are not affected. A company limited by shares can either be a private company or a public company.
The only a minimum of one director and /or one shareholder is required but the individual must be ordinarily residing in Malaysia with a principal place of residence in Malaysia. The maximum number of members allowed are 50. There is no need to publicly report the financials of the company, nor is there a need to hold an annual general meeting.
(5) Company Limited by Guarantee (CLBG)
A CLBG is a public company, and may have the term ‘Berhad’ (Bhd) suffixed to its name. CLBGs can, however, apply for the suffix to be omitted.
CLBGs are mainly formed by non-profitable organisations such as charities, community projects, clubs, societies and other similar bodies. No profits or dividends are distributed to the members of the company. CLBGs are prohibited from having a share capital under the Companies Act, and CLBGs are required to adopt a constitution at the point of incorporation, which states that the company is a company limited by guarantee. The Constitution should also state the objects of the company, the capacity, rights, powers and privileges of the company, and the number of members with which the company proposes to be incorporated.
As unincorporated associations are prohibited under the Companies Act, 2016, any charitable organisation which involves more than 20 people are required to be registered with the SSM. Examples of CLBGs include Foundation (Yayasan), Institute (Institut), Academy (Akademi), Corporation (Perbadanan), Alliance (Gabungan), Fund (Tabung), Centre (Pusat) etc.
(6) Public Limited Company
A public limited company is known as a ‘Berhad’(Bhd). Public limited companies may or may not be listed on the stock exchange. There is no limit to the maximum number of shareholders in a public limited company is allowed to have. It is mandatory for public limited companies to hold annual general meetings and make public the annual reports on their financials. Public limited companies are subject to higher reporting standards and listing rules by the SSM and the Securities Commission of Malaysia . Unlike a Sdn Bhd, a public limited Company needs minimum of 2 directors who are ordinarily residing in Malaysia with a principal place of residence in Malaysia.
(7) Unlimited Companies
An unlimited company means that limited liability does not apply to its members/shareholders. As such, its members/shareholders will be personally responsible for all or any losses it incurs. Unlimited companies are rarely incorporated in Malaysia. All other start up, operation costs and procedures remain the same. An unlimited company may be converted to a limited company by the passing a special resolution and lodging a notice for conversion with the SSM.
(8) Foreign Companies
Foreign companies are companies (or other corporate bodies) that are incorporated outside of Malaysia. Foreign companies can be incorporated or registered in Malaysia as a Sdn Bhd (with foreign shareholder ownership) or as a foreign branch office with the SSM. A foreign branch office is not a separate entity under the Companies Act, 2016 as they are an extension of the foreign incorporated parent company, and are not incorporated as a separate new entity. Branch offices are mostly used by foreign companies wishing to adopt short term operations in Malaysia.
Source : Introduction to LLP